Wealth, Generation Y and Cities

Reading this article in the New York Times (and this one) about the lag in wealth building by younger generations compared to their parents has had me reflectively thinking about my own situation. I have two degrees, including a masters. My wife and I even managed to save for a house, which we purchased in 2009 (in hindsight, it appears we bought too early as we’re likely underwater). We also have two kids. Needless to say, our finances are strained. The way things are looking, I’ll pay off all my student loans shortly before I am 60. That would be after both of my daughters complete college, in which case I’ll likely be paying loans off until death. And that’s OK. It’s a decision I made. And yet, I can’t help but feel something is deeply problematic with the financial situation facing much of my generation. The job market sucks, making it difficult to build a life on a foundation of debt. And if you are fortunate to have a job like I am, then perhaps you are faced with stagnate or declining wages over the long term. But costs are going up. Housing, education, health care, transportation and energy costs have all risen dramatically while income has fallen.

I can’t say how this will play out over the long term. But these trends have an effect on the way people live and our cities are evolving to meet the demands that these trends are making. From a planning perspective we are likely to see the following trends continue, for better or worse.

Decline in the traditional household patterns. Forget the 1950’s married couple with 2.5 kids. That’s been gone for a long time and unlikely to return. My generation is getting married later (if at all) and not having children at nearly the same rate as our parents.

Continued influx of Generation Y to the cities. This, from an urbanist perspective, is overwhelmingly good. Gen Y doesn’t have the love of cars as previous generations (hell, we can’t afford them) and are looking at cities with new found opportunities. We’re reinvesting in places with existing infrastructure, thus reducing the need for greenfield development. What remains to be seen is whether my generation stays in the cities and that will largely be determined by whether we can make the city livable for all classes of people. Thus, how do we improve municipal finance, urban schools, gentrification/displacement of the poor, and clean up and adaptively reuse brownfield redevelopment.

Houses as we know them will be radically different. Gone are the days of large scale cookie-cutter subdivisions as the predominant residential building mode. To meet the needs of Gen Y (and the downsizing baby boomers) we’ll need a lot more multi-family and smaller, more efficient homes near transit. I also suspect the cookie-cutter houses that will go up for sale as the boomers downsize will not find enough buyers, as Gen Y is a smaller generation and seems, at this point, wholly uninterested in moving to the suburbs to the extent our parents did.

Public transit will face an existential crisis but will survive. The current financing model for public transit is outdated and does not reflect the economic or demographic realities of our time. Federal support will decline and transportation will increasingly be solved by local governments. However, the demand by Gen Y and the baby boomers (who will, inevitably, learn to ride transit not by choice, but out of necessity due to aging) for public transit will become overwhelming, in reality and politically. Now, what public transit looks like is another story. I can see room for private operators (e.g. jitneys, taxis, even ferries) as public providers contract services, particularly in outlying areas. I think we’ll see a refocus on urban areas where traditional transit has the greatest chance of success.

Our cities will experience a bit of a renaissance as people move back in. On the other hand, the suburban experiment is likely due for hardship. While appealing to some, I can’t see how it sustains itself in its enormity from a market standpoint and fiscal reality. There frankly isn’t a market for the sheer number of single family homes in cul-de-sacs out there. And governments cannot afford the replacement costs of the second generation of infrastructure that many of these suburbs will be requiring over the next 20 or so years. This may lead to a situation similar to many European cities (e.g. Paris) where the center city is luxurious and the suburbs surrounding it are falling apart.

If this is truly our future, I pray that I have made the prudent lifestyle decisions to support my family. We’ll see.

The challenge, like with anything else, will be how we adapt to these new trends. The hard part, as a planner, is telling people that the way things have been running for the past 50 years or so is likely to change. Because for many people, change is scary.

If Gen Y is less wealthy, with stagnate/declining wage prospects, do you think the influx of Gen Y to the city is just going to make the city that much more difficult to make livable? To put it another way, how is gentrification (or even status quo) going to occur if everyone moving into the city is poor?

If Paris happens in Chicago, and the city center becomes luxurious, where is Gen Y in that instance? Because living in Paris proper is crazy expensive. Except cigarettes…those are probably cheaper there.

Historically, home equity has made up for a significant
portion of one’s net worth. How can Gen Y supplement that if they rent a floor of a three-flat in the city for 20 years instead of buying a home and building equity? Do they?

What I’ve been seeing is huge demand for living in particular areas of the city that have established neighborhoods, good schools, walkable, close to public transportation and recreational amenities etc. This drives up the price and increases gentrification. I don’t mean to say that everyone from Gen Y will be poor, but rather, they have unique economic challenges that are particular to their generation that will favor city living. In Chicago, it’s generally cheaper to rent than buy in many of the neighborhoods that Gen Y is attracted to.

Because it is true that home equity is a significant portion of one’s worth, it is also true that that wealth is not very liquid. Gen Y is not buying homes in great quantities, therefore their wealth, whatever it may be, is more liquid. They may not have investments in stock, real estate, 401k but are likely to have some amount of cash and credit. Gen Y may not be as wealthy as their parents, but their wealth might be a bit more accessible.

Change is never easy. This certainly won’t be. It isn’t a surprise that the pendulum is swinging in favor of urban living. Where it will all lead and the subsequent consiquences of that change will certainly be interesting.